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CBRE Group, Inc. Reports Strong Financial Results for Third-Quarter 2017
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GAAP EPS of $0.58, up 87%
Adjusted EPS of $0.64, up 28%
Revenue and Fee Revenue up 11% and 10%, respectively

LOS ANGELES--(BUSINESS WIRE)--Nov. 3, 2017-- CBRE Group, Inc. (NYSE:CBG) today reported strong financial results for the third quarter ended September 30, 2017.

“We are pleased to produce another quarter of excellent results, with double-digit revenue growth and adjusted earnings per share up 28%,” said Bob Sulentic, CBRE’s president and chief executive officer. “Our performance is the direct result of our focused strategy to produce exceptional outcomes for our clients and the commitment of our more than 75,000 people to executing our strategy.”

“The strength of our performance in the third quarter was broad-based. Each of our three global regions produced solid organic growth. Leasing returned to double-digit growth, and was especially strong in the U.S. Revenue growth accelerated in our occupier outsourcing business, as we continue to capitalize on our commanding position in this growing sector. Global property sales saw healthy growth, despite a generally tepid market for transaction activity, reflecting the strength of our brand and ability to take market share. Finally, we also had excellent performance in both of our real estate investment businesses.”

Mr. Sulentic added: “We continue to see healthy momentum across most of our businesses and regions and are increasing our full-year 2017 guidance for adjusted earnings per share to a range of $2.58 to $2.68.”

Third-Quarter 2017 Results

  • Revenue for the third quarter totaled $3.5 billion, an increase of 11% (10% local currency1). Fee revenue2 increased 10% (9% local currency) to $2.3 billion.
  • On a GAAP basis, net income increased 88% and earnings per diluted share increased 87% to $196.3 million and $0.58 per share, respectively. Adjusted net income3 for the third quarter of 2017 rose 31% to $219.5 million, while adjusted earnings per share3 improved 28% to $0.64 per share.
  • The adjustments to GAAP net income for the third quarter of 2017 included $28.2 million (pre-tax) of non-cash acquisition-related amortization and $5.1 million (pre-tax) of net carried interest incentive compensation expense. These costs were partially offset by a net tax benefit of $10.2 million associated with the aforementioned adjustments.
  • EBITDA4 increased 43% (42% local currency) to $406.4 million and adjusted EBITDA4 increased 18% (17% local currency) to $411.6 million. Adjusted EBITDA margin on fee revenue increased 120 basis points to 17.7%. The company’s regional services businesses – the Americas, Europe, the Middle East and Africa (EMEA) and Asia Pacific (APAC) – produced combined adjusted EBITDA growth for the quarter of 12% (11% excluding the impact of all currency movement including hedging activity).

Third-Quarter 2017 Segment Review

The following tables present highlights of CBRE segment performance during the third quarter of 2017 (dollars in thousands):

 
    Americas       EMEA       APAC
   

% Change from Q3
2016

   

% Change from Q3
2016

   

% Change from Q3
2016

Q3 2017 USD     LC Q3 2017 USD     LC Q3 2017 USD     LC
Revenue $ 1,969,430   11 %   11 % $ 1,033,042   9 %   7 % $ 440,933   22 %   21 %
Fee revenue 1,355,215 9 % 9 % 574,312 10 % 8 % 285,235 19 % 18 %
EBITDA 238,259 28 % 27 % 71,169 45 % 41 % 43,081 59 % 60 %
Adjusted EBITDA 238,259 7 % 7 % 71,169 16 % 14 % 43,081 37 % 37 %
 
 
Global Investment Management Development Services (5)

% Change from Q3
2016

% Change from Q3
2016

`
Q3 2017 USD LC Q3 2017 USD LC
Revenue $ 92,122 -1 % $ 14,450 -12 % -12 %
EBITDA 18,068 198 % 194 % 35,863 128 % 128 %
Adjusted EBITDA 23,202 22 % 21 % 35,863 128 % 128 %
 

Excluding the impact of all currency movement including hedging activity, adjusted EBITDA growth rates for the third quarter of 2017 were: 8% in the Americas, 12% in EMEA, 31% in APAC and 17% in Global Investment Management.

CBRE’s revenue growth was strong in all three of its regional services businesses in the third quarter.

  • APAC posted a 22% (21% local currency) revenue increase, supported by outsized growth in Greater China, India, Japan and Singapore.
  • In the Americas, revenue increased 11% (same local currency), with double-digit growth in occupier outsourcing and leasing. Brazil, Canada and the United States all exhibited strong overall growth.
  • EMEA revenue rose 9% (7% local currency), paced by strong gains in the United Kingdom.

Revenue growth across CBRE’s global business lines was almost entirely organic.

  • Global occupier outsourcing achieved growth of 14% (13% local currency) in both revenue and fee revenue. Almost all of this growth was organic.
    • Growth was broad-based across the three global regions, led by India, Singapore, the United Kingdom and the United States.
  • Leasing revenue rose 13% (12% local currency), with double-digit growth in APAC and the Americas.
    • APAC leasing revenue surged 17% (same local currency), with especially strong growth in Australia, Greater China, India and Japan.
    • Americas leasing revenue rose 14% (13% in local currency), and 16% in the United States, paced by strong performance in New York City.
    • In EMEA, Germany, Italy and Spain led the way to 7% (4% local currency) growth for the region.
  • The capital markets businesses – property sales and commercial mortgage origination – produced global revenue growth of 5% (4% local currency) on a combined basis.
  • Global property sales revenue rose 9% (same local currency), reflecting market share gains in an environment where global market volumes were relatively flat year over year.
    • This performance was paced by robust growth in APAC, which increased 33% (same local currency), led by Australia, Greater China and Japan.
    • Americas sales revenue improved 7% (same local currency), as robust gains in Brazil and Canada offset relatively flat revenue in the United States. CBRE extended its market-leading position in U.S. investment sales with market share increasing approximately 190 basis points versus last year’s third quarter, according to Real Capital Analytics.
    • EMEA’s revenue was flat (2% decline local currency) – reflecting fewer large transactions in continental Europe – although growth remained strong in the United Kingdom.
  • Commercial mortgage origination revenue declined 12% (same local currency), driven almost entirely by lower gains from mortgage-servicing rights associated with U.S. Government Sponsored Enterprises financing activity, which more than doubled in the prior-year third quarter.
  • Recurring revenue from the loan servicing portfolio increased 24% (same local currency). At the end of the third quarter, CBRE’s loan servicing portfolio totaled approximately $165 billion, up 27% from the year-earlier third quarter.
  • Property management services produced solid growth of 9% (8% local currency) for revenue and 11% (10% local currency) for fee revenue.
  • Valuation revenue increased 6% (4% local currency).
  • CBRE’s real estate investment businesses – Global Investment Management and Development Services – produced combined adjusted EBITDA growth of 70% (69% local currency) in the third quarter.
    • In the Global Investment Management segment, assets under management (AUM) totaled $98.3 billion, up $10.4 billion, or $2.6 billion excluding the Caledon Capital acquisition, which was completed in August 2017. Positive foreign currency movement added $2.2 billion to AUM versus the prior-year quarter.
    • In the Development Services segment, projects in process totaled $5.9 billion, down $1.2 billion from the third quarter of 2016, while the pipeline totaled $5.4 billion, up $1.7 billion in the same period. Fee-only and build-to-suit projects constitute more than 50% of the pipeline.

Nine-Month 2017 Results

  • Revenue for the nine months ended September 30, 2017 totaled $9.9 billion, an increase of 7% (8% local currency). Fee revenue increased 6% (7% local currency) to $6.4 billion. This growth was almost entirely organic.
  • On a GAAP basis, net income increased 70% to $523.1 million and earnings per diluted share increased 69% to $1.54 per share. Adjusted net income for the first nine months of 2017 rose 26% to $586.6 million, while adjusted earnings per share improved 26% to $1.72 per share.
  • EBITDA increased 31% (32% local currency) to $1.1 billion and adjusted EBITDA increased 14% (same in local currency) to $1.1 billion. Adjusted EBITDA margin on fee revenue increased approximately 120 basis points to 17.5%.

Conference Call Details

The company’s third quarter earnings conference call will be held today (Friday, November 3, 2017) at 8:30 a.m. Eastern Time. A webcast, along with an associated slide presentation, will be accessible through the Investor Relations section of the company’s website at www.cbre.com/investorrelations.

The direct dial-in number for the conference call is 877-407-8037 for U.S. callers and 201-689-8037 for international callers. A replay of the call will be available starting at 1:00 p.m. Eastern Time on November 3, 2017, and ending at midnight Eastern Time on November 10, 2017. The dial-in number for the replay is 877-660-6853 for U.S. callers and 201-612-7415 for international callers. The access code for the replay is 13671701. A transcript of the call will be available on the company’s Investor Relations website at www.cbre.com/investorrelations.

About CBRE Group, Inc.

CBRE Group, Inc. (NYSE:CBG), a Fortune 500 and S&P 500 company headquartered in Los Angeles, is the world’s largest commercial real estate services and investment firm (based on 2016 revenue). The company has more than 75,000 employees (excluding affiliates), and serves real estate investors and occupiers through approximately 450 offices (excluding affiliates) worldwide. CBRE offers a broad range of integrated services, including facilities, transaction and project management; property management; investment management; appraisal and valuation; property leasing; strategic consulting; property sales; mortgage services and development services. Please visit our website at www.cbre.com.

The information contained in, or accessible through, the company’s website is not incorporated into this press release.

This press release contains forward-looking statements within the meaning of the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995, including statements regarding our future growth momentum, operations, financial performance (including adjusted earnings per share), currency movement, market share, and business outlook. These forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause the company’s actual results and performance in future periods to be materially different from any future results or performance suggested in forward-looking statements in this press release. Any forward-looking statements speak only as of the date of this press release and, except to the extent required by applicable securities laws, the company expressly disclaims any obligation to update or revise any of them to reflect actual results, any changes in expectations or any change in events. If the company does update one or more forward-looking statements, no inference should be drawn that it will make additional updates with respect to those or other forward-looking statements. Factors that could cause results to differ materially include, but are not limited to: disruptions in general economic and business conditions, particularly in geographies where our business may be concentrated; volatility and disruption of the securities, capital and credit markets, interest rate increases, the cost and availability of capital for investment in real estate, clients’ willingness to make real estate or long-term contractual commitments and other factors affecting the value of real estate assets, inside and outside the United States; increases in unemployment and general slowdowns in commercial activity; trends in pricing and risk assumption for commercial real estate services; the effect of significant movements in average cap rates across different property types; a reduction by companies in their reliance on outsourcing for their commercial real estate needs, which would affect our revenues and operating performance; client actions to restrain project spending and reduce outsourced staffing levels; declines in lending activity of U.S. Government Sponsored Enterprises, regulatory oversight of such activity and our mortgage servicing revenue from the commercial real estate mortgage market; our ability to diversify our revenue model to offset cyclical economic trends in the commercial real estate industry; our ability to attract new user and investor clients; our ability to retain major clients and renew related contracts; our ability to leverage our global services platform to maximize and sustain long-term cash flow; our ability to maintain EBITDA and adjusted EBITDA margins that enable us to continue investing in our platform and client service offerings; our ability to control costs relative to revenue growth; economic volatility and market uncertainty globally related to uncertainty surrounding the implementation and effect of the United Kingdom’s referendum to leave the European Union, including uncertainty in relation to the legal and regulatory framework that would apply to the United Kingdom and its relationship with the remaining members of the European Union; foreign currency fluctuations; our ability to retain and incentivize key personnel; our ability to compete globally, or in specific geographic markets or business segments that are material to us; our ability to identify, acquire and integrate synergistic and accretive businesses; costs and potential future capital requirements relating to businesses we may acquire; integration challenges arising out of companies we may acquire; the ability of our Global Investment Management business to maintain and grow assets under management and achieve desired investment returns for our investors, and any potential related litigation, liabilities or reputational harm possible if we fail to do so; our ability to manage fluctuations in net earnings and cash flow, which could result from poor performance in our investment programs, including our participation as a principal in real estate investments; our leverage under our debt instruments as well as the limited restrictions therein on our ability to incur additional debt, and the potential increased borrowing costs to us from a credit-ratings downgrade; the ability of our wholly-owned subsidiary, CBRE Capital Markets, Inc., to periodically amend, or replace, on satisfactory terms, the agreements for its warehouse lines of credit; variations in historically customary seasonal patterns that cause our business not to perform as expected; litigation and its financial and reputational risks to us; our exposure to liabilities in connection with real estate advisory and property management activities and our ability to procure sufficient insurance coverage on acceptable terms; liabilities under guarantees, or for construction defects, that we incur in our Development Services business; our and our employees’ ability to execute on, and adapt to, information technology strategies and trends; changes in domestic and international law and regulatory environments (including relating to anti-corruption, anti-money laundering, trade sanctions, currency controls and other trade control laws), particularly in Russia, Eastern Europe and the Middle East, due to the rising level of political instability in those regions; our ability to comply with laws and regulations related to our global operations, including real estate licensure, tax, labor and employment laws and regulations, as well as the anti-corruption laws and trade sanctions of the U.S. and other countries; our ability to maintain our effective tax rate at or below current levels; changes in applicable tax or accounting requirements, including potential tax reform under the current U.S. administration; and the effect of implementation of new accounting rules and standards.

Additional information concerning factors that may influence the company’s financial information is discussed under “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Quantitative and Qualitative Disclosures About Market Risk” and “Cautionary Note on Forward-Looking Statements” in our Annual Report on Form 10-K for the year ended December 31, 2016 and our Quarterly Reports on Form 10-Q for the quarters ended March 31, 2017 and June 30, 2017, as well as in the company’s press releases and other periodic filings with the Securities and Exchange Commission (SEC). Such filings are available publicly and may be obtained on the company’s website at www.cbre.com or upon written request from CBRE’s Investor Relations Department at investorrelations@cbre.com.

Note – CBRE has not reconciled the (non-GAAP) adjusted earnings per share forward-looking guidance included in this press release to the most directly comparable GAAP measure because this cannot be done without unreasonable effort due to the variability and low visibility with respect to costs related to acquisitions, carried interest incentive compensation and financing costs, which are potential adjustments to future earnings. We expect the variability of these items to have a potentially unpredictable, and a potentially significant, impact on our future GAAP financial results.

The terms “fee revenue,” “adjusted net income,” “adjusted earnings per share” (or adjusted EPS), “EBITDA” and “adjusted EBITDA,” all of which CBRE uses in this press release, are non-GAAP financial measures under SEC guidelines, and you should refer to the footnotes below as well as the “Non-GAAP Financial Measures” section in this press release for a further explanation of these measures. We have also included in that section reconciliations of these measures in specific periods to their most directly comparable financial measure calculated and presented in accordance with GAAP for those periods.

1 Local currency percentage change is calculated by comparing current-period results at prior-period exchange rates versus prior-period results.

2 Fee revenue is gross revenue less both client reimbursed costs largely associated with employees that are dedicated to client facilities and subcontracted vendor work performed for clients. Certain adjustments have been made to 2016 fee revenue to conform with current-year presentation.

3 Adjusted net income and adjusted earnings per share (or adjusted EPS) exclude the effect of select charges from GAAP net income and GAAP earnings per diluted share as well as adjust the provision for income taxes for such charges. Adjustments during the periods presented included non-cash amortization expense related to certain intangible assets attributable to acquisitions, integration and other costs related to acquisitions, cost-elimination expenses and certain carried interest incentive compensation expense (reversal) to align with the timing of associated revenue.

4 EBITDA represents earnings before net interest expense, write-off of financing costs on extinguished debt, income taxes, depreciation and amortization. Amounts shown for adjusted EBITDA further remove (from EBITDA) the impact of certain cash and non-cash charges related to acquisitions, cost-elimination expenses and certain carried interest incentive compensation expense (reversal) to align with the timing of associated revenue.

5 Revenue in the Development Services segment does not include equity income from unconsolidated subsidiaries and gain on disposition of real estate, net of non-controlling interest. EBITDA includes equity income from unconsolidated subsidiaries and gain on disposition of real estate, net of non-controlling interests, and the associated compensation expense.

 

CBRE GROUP, INC.

OPERATING RESULTS

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2017 AND 2016

(Dollars in thousands, except share data)

(Unaudited)

 
    Three Months Ended       Nine Months Ended
September 30, September 30,
2017     2016 2017     2016
Revenue:
Fee revenue (1) $ 2,321,334 $ 2,113,906 $ 6,434,763 $ 6,070,530
Pass through costs also recognized as revenue   1,228,643   1,079,581   3,438,633   3,177,228
Total revenue   3,549,977   3,193,487   9,873,396   9,247,758
 
Costs and expenses:
Cost of services 2,513,377 2,252,783 6,919,018 6,520,629
Operating, administrative and other 704,898 686,530 2,023,503 2,010,338
Depreciation and amortization   102,591   92,725   297,014   269,987
Total costs and expenses   3,320,866   3,032,038   9,239,535   8,800,954
 
Gain on disposition of real estate (2)   6,180   11,043   18,863   15,862
 
Operating income 235,291 172,492 652,724 462,666
 
Equity income from unconsolidated subsidiaries (2) 67,834 24,672 158,236 116,902
Other income 1,768 1,356 9,069 8,453
Interest income 3,129 1,020 6,967 5,545
Interest expense   34,483   37,273   103,923   109,050
Income before provision for income taxes 273,539 162,267 723,073 484,516
Provision for income taxes   76,178   51,414   195,813   165,578
Net income 197,361 110,853 527,260 318,938
Less: Net income attributable to non-controlling interests (2)   1,044   6,690   4,181   10,940
Net income attributable to CBRE Group, Inc. $ 196,317 $ 104,163 $ 523,079 $ 307,998
 
 
Basic income per share:
Net income per share attributable to CBRE Group, Inc. $ 0.58 $ 0.31 $ 1.55 $ 0.92
Weighted average shares outstanding for basic income

per share

  337,948,324   335,770,122   337,280,914   334,949,606
 
Diluted income per share:
Net income per share attributable to CBRE Group, Inc. $ 0.58 $ 0.31 $ 1.54 $ 0.91
Weighted average shares outstanding for diluted income

per share

  341,186,431   338,488,975   340,502,432   338,053,297
 
 
EBITDA $ 406,440 $ 284,555 $ 1,112,862 $ 847,068
Adjusted EBITDA $ 411,574 $ 349,384 $ 1,127,331 $ 992,518
 

__________________

(1)     Certain adjustments have been made to 2016 fee revenue to conform with current-year presentation.
(2) Equity income from unconsolidated subsidiaries and gain on disposition of real estate, less net income attributable to non-controlling interests, includes income of $68.3 million and $26.2 million for the three months ended September 30, 2017 and 2016, respectively, and $155.3 million and $107.0 million for the nine months ended September 30, 2017 and 2016, respectively, attributable to Development Services but does not include significant related compensation expense (which is included in operating, administrative and other expenses). In the Development Services segment, related equity income from unconsolidated subsidiaries and gain on disposition of real estate, net of non-controlling interests, and the associated compensation expense, are all included in EBITDA.
 
 

CBRE GROUP, INC.

SEGMENT RESULTS

FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2017

(Dollars in thousands)

(Unaudited)

 
    Three Months Ended September 30, 2017
          Global      
Investment Development
Americas EMEA Asia Pacific Management Services Consolidated
Revenue:
Fee revenue $ 1,355,215 $ 574,312 $ 285,235 $ 92,122 $ 14,450 $ 2,321,334
Pass through costs also

recognized as revenue

  614,215   458,730   155,698       1,228,643
Total revenue   1,969,430   1,033,042   440,933   92,122   14,450   3,549,977
 
Costs and expenses:
Cost of services 1,394,731 803,293 315,353 2,513,377
Operating, administrative

and other

340,190 158,829 82,610 76,347 46,922 704,898
Depreciation and amortization   73,768   17,539   4,657   6,082   545   102,591
Total costs and expenses   1,808,689   979,661   402,620   82,429   47,467   3,320,866
 
Gain on disposition of real estate           6,180   6,180
 
Operating income (loss) 160,741 53,381 38,313 9,693 (26,837 ) 235,291
 
Equity income from

unconsolidated subsidiaries

3,295 399 111 1,895 62,134 67,834
Other income (expense) 455 (95 ) 1,408 1,768
Less: Net income (loss)

attributable to non-controlling

interests

55 1,010 (21 ) 1,044
Add-back: Depreciation and

amortization

  73,768   17,539   4,657   6,082   545   102,591
 
EBITDA 238,259 71,169 43,081 18,068 35,863 406,440
 
Adjustments:
Carried interest incentive

compensation expense to

align with the timing of

associated revenue

        5,134     5,134
 
Adjusted EBITDA $ 238,259 $ 71,169 $ 43,081 $ 23,202 $ 35,863 $ 411,574
 
 

CBRE GROUP, INC.

SEGMENT RESULTS—(CONTINUED)

FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2016

(Dollars in thousands)

(Unaudited)

 
    Three Months Ended September 30, 2016
            Global    
Investment Development
Americas EMEA Asia Pacific Management Services Consolidated
Revenue:
Fee revenue (1) $ 1,240,753 $ 524,467 $ 240,380 $ 91,807 $ 16,499 $ 2,113,906
Pass through costs also

recognized as revenue

  534,573   423,586   121,422       1,079,581
Total revenue   1,775,326   948,053   361,802   91,807   16,499   3,193,487
 
Costs and expenses:
Cost of services 1,256,268 734,343 262,172 2,252,783
Operating, administrative

and other

335,839 164,552 72,656 86,493 26,990 686,530
Depreciation and amortization   62,549   19,379   4,481   5,673   643   92,725
Total costs and expenses   1,654,656   918,274   339,309   92,166   27,633   3,032,038
 
Gain on disposition of real estate           11,043   11,043
 
Operating income (loss) 120,670 29,779 22,493 (359 ) (91 ) 172,492
 
Equity income from

unconsolidated subsidiaries

3,056 483 102 1,519 19,512 24,672
Other income 277 1,079 1,356
Less: Net income attributable

to non-controlling interests

1 431 45 1,858 4,355 6,690
Add-back: Depreciation and

amortization

  62,549   19,379   4,481   5,673   643   92,725
 
EBITDA 186,551 49,210 27,031 6,054 15,709 284,555
 
Adjustments:
Cost-elimination expenses 17,974 2,038 3,287 15,578 38,877
Integration and other costs

related to acquisitions

17,518 9,929 1,149 28,596
Carried interest incentive

compensation reversal to

align with the timing of

associated revenue

        (2,644 )     (2,644 )
 
Adjusted EBITDA $ 222,043 $ 61,177 $ 31,467 $ 18,988 $ 15,709 $ 349,384
 

__________________

(1)    

In 2017, we have changed the presentation of the operating results of one of our emerging businesses among our regional services reporting segments. Prior year amounts have been reclassified to conform with the current-year presentation. This change had no impact on our consolidated results. Additionally, certain adjustments have been made to 2016 fee revenue to conform with current-year presentation.

 
 

CBRE GROUP, INC.

SEGMENT RESULTS—(CONTINUED)

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2017

(Dollars in thousands)

(Unaudited)

 
    Nine Months Ended September 30, 2017
          Global    
Investment Development
Americas EMEA Asia Pacific Management Services Consolidated
Revenue:
Fee revenue $ 3,750,001 $ 1,597,877 $ 767,122 $ 274,451 $ 45,312 $ 6,434,763
Pass through costs also

recognized as revenue

  1,768,962   1,234,087   435,584       3,438,633
Total revenue   5,518,963   2,831,964   1,202,706   274,451   45,312   9,873,396
 
Costs and expenses:
Cost of services 3,848,207 2,202,793 868,018 6,919,018
Operating, administrative

and other

1,013,478 466,606 228,705 199,178 115,536 2,023,503

Depreciation and amortization

  214,061   51,954   13,360   16,006   1,633   297,014
Total costs and expenses   5,075,746   2,721,353   1,110,083   215,184   117,169   9,239,535
 
Gain on disposition of real estate           18,863   18,863
 
Operating income (loss) 443,217 110,611 92,623 59,267 (52,994 ) 652,724
 
Equity income from

unconsolidated subsidiaries

13,157 1,218 161 7,187 136,513 158,236
Other income (expense) 1,494 (72 ) 7,647 9,069

Less: Net (loss) income

attributable to non-controlling

interests

(105 ) 4,254 32 4,181
Add-back: Depreciation and

amortization

  214,061   51,954   13,360   16,006   1,633   297,014
 
EBITDA 671,929 163,816 106,144 85,853 85,120 1,112,862
 
Adjustments:
Integration and other costs

related to acquisitions

17,139 9,794 418 27,351
Carried interest incentive

compensation reversal to

align with the timing of

associated revenue

        (12,882 )     (12,882 )
 
Adjusted EBITDA $ 689,068 $ 173,610 $ 106,562 $ 72,971 $ 85,120 $ 1,127,331
 
 

CBRE GROUP, INC.

SEGMENT RESULTS—(CONTINUED)

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2016

(Dollars in thousands)

(Unaudited)

 
    Nine Months Ended September 30, 2016
        Global    
Investment Development
Americas EMEA Asia Pacific Management Services Consolidated
Revenue:
Fee revenue (1) $ 3,562,453 $ 1,515,746 $ 663,244 $ 277,924 $ 51,163 $ 6,070,530
Pass through costs also

recognized as revenue

  1,581,137   1,226,572   369,519       3,177,228
Total revenue   5,143,590   2,742,318   1,032,763   277,924   51,163   9,247,758
 
Costs and expenses:
Cost of services 3,594,638 2,169,669 756,322 6,520,629
Operating, administrative

and other

994,439 473,442 217,982 232,460 92,015 2,010,338
Depreciation and amortization   186,352   50,631   12,963   18,110   1,931   269,987
Total costs and expenses   4,775,429   2,693,742   987,267   250,570   93,946   8,800,954
 
Gain on disposition of real estate           15,862   15,862
 
Operating income (loss) 368,161 48,576 45,496 27,354 (26,921 ) 462,666
 
Equity income from

unconsolidated subsidiaries

13,879 1,226 142 6,273 95,382 116,902
Other (loss) income (204 ) 10 8,647 8,453
Less: Net (loss) income

attributable to non-controlling

interests

(358 ) 208 6,807 4,283 10,940
Add-back: Depreciation and

amortization

  186,352   50,631   12,963   18,110   1,931   269,987
 
EBITDA 568,188 100,801 58,393 53,577 66,109 847,068
 
Adjustments:
Cost-elimination expenses 22,273 25,640 9,265 21,278 78,456
Integration and other costs

related to acquisitions

46,207 22,401 4,912 73,520
Carried interest incentive

compensation reversal to

align with the timing of

associated revenue

        (6,526 )     (6,526 )
 
Adjusted EBITDA $ 636,668 $ 148,842 $ 72,570 $ 68,329 $ 66,109 $ 992,518
 

__________________

(1)     In 2017, we have changed the presentation of the operating results of one of our emerging businesses among our regional services reporting segments. Prior year amounts have been reclassified to conform with the current-year presentation. This change had no impact on our consolidated results. Additionally, certain adjustments have been made to 2016 fee revenue to conform with current-year presentation.
 

Non-GAAP Financial Measures

The following measures are considered “non-GAAP financial measures” under SEC guidelines:

             
(i) Fee revenue
(ii) Net income attributable to CBRE Group, Inc., as adjusted (which we also refer to as “adjusted net income”)
(iii) Diluted income per share attributable to CBRE Group, Inc. shareholders, as adjusted (which we also refer to as “adjusted earnings per share” or “adjusted EPS”)
(iv) EBITDA and adjusted EBITDA
 

These measures are not recognized measurements under United States generally accepted accounting principles, or “GAAP.” When analyzing our operating performance, investors should use them in addition to, and not as an alternative for, their most directly comparable financial measure calculated and presented in accordance with GAAP. Because not all companies use identical calculations, our presentation of these measures may not be comparable to similarly titled measures of other companies.

Our management generally uses these non-GAAP financial measures to evaluate operating performance and for other discretionary purposes. The company believes that these measures provide a more complete understanding of ongoing operations, enhance comparability of current results to prior periods and may be useful for investors to analyze our financial performance because they eliminate the impact of selected charges that may obscure trends in the underlying performance of our business. The company further uses certain of these measures, and believes that they are useful to investors, for purposes described below.

With respect to fee revenue: the company believes that investors may find this measure useful to analyze the financial performance of our Occupier Outsourcing and Property Management business lines and our business generally. Fee revenue excludes costs reimbursable by clients, and as such provides greater visibility into the underlying performance of our business.

With respect to adjusted net income, adjusted EPS, EBITDA and adjusted EBITDA: the company believes that investors may find these measures useful in evaluating our operating performance compared to that of other companies in our industry because their calculations generally eliminate the accounting effects of acquisitions, which would include impairment charges of goodwill and intangibles created from acquisitions—and in the case of EBITDA and adjusted EBITDA—the effects of financings and income tax and the accounting effects of capital spending. All of these measures may vary for different companies for reasons unrelated to overall operating performance. In the case of EBITDA and adjusted EBITDA, these measures are not intended to be measures of free cash flow for our management’s discretionary use because they do not consider cash requirements such as tax and debt service payments. The EBITDA and adjusted EBITDA measures calculated herein may also differ from the amounts calculated under similarly titled definitions in our credit facilities and debt instruments, which amounts are further adjusted to reflect certain other cash and non-cash charges and are used by us to determine compliance with financial covenants therein and our ability to engage in certain activities, such as incurring additional debt and making certain restricted payments. The company also uses adjusted EBITDA and adjusted EPS as significant components when measuring our operating performance under our employee incentive compensation programs.

Net income attributable to CBRE Group, Inc., as adjusted (or adjusted net income), and diluted income per share attributable to CBRE Group, Inc. shareholders, as adjusted (or adjusted EPS), are calculated as follows (dollars in thousands, except share data):

 
    Three Months Ended   Nine Months Ended
September 30, September 30,
2017   2016 2017   2016
Net income attributable to CBRE Group, Inc. $ 196,317 $ 104,163 $ 523,079 $ 307,998
 
Plus / minus:
Non-cash amortization expense related to certain intangible

assets attributable to acquisitions

28,211 30,306 82,526 81,758
Cost-elimination expenses (1) 38,877 78,456
Integration and other costs related to acquisitions 28,596 27,351 73,520
Carried interest incentive compensation expense (reversal)

to align with the timing of associated revenue

5,134 (2,644 ) (12,882 ) (6,526 )
Tax impact of adjusted items   (10,203 )   (31,271 )   (33,448 )   (71,415 )
 
Net income attributable to CBRE Group, Inc. shareholders,

as adjusted

$ 219,459 $ 168,027 $ 586,626 $ 463,791
 
Diluted income per share attributable to CBRE Group, Inc.

shareholders, as adjusted

$ 0.64 $ 0.50 $ 1.72 $ 1.37
 
Weighted average shares outstanding for diluted income

per share

  341,186,431   338,488,975   340,502,432   338,053,297
 

EBITDA and adjusted EBITDA, are calculated as follows (dollars in thousands):

 
    Three Months Ended     Nine Months Ended
September 30, September 30,
2017     2016 2017   2016
Net income attributable to CBRE Group, Inc. $ 196,317 $ 104,163 $ 523,079 $ 307,998
 
Add:
Depreciation and amortization 102,591 92,725 297,014 269,987
Interest expense 34,483 37,273 103,923 109,050
Provision for income taxes 76,178 51,414 195,813 165,578
Less:
Interest income   3,129   1,020   6,967   5,545
 
EBITDA 406,440 284,555 1,112,862 847,068
 
Adjustments:
Cost-elimination expenses (1) 38,877 78,456
Integration and other costs related to acquisitions 28,596 27,351 73,520
Carried interest incentive compensation expense (reversal)

to align with the timing of associated revenue

  5,134   (2,644 )   (12,882 )   (6,526 )
 
Adjusted EBITDA $ 411,574 $ 349,384 $ 1,127,331 $ 992,518
 

__________________

(1)

    Represents cost-elimination expenses relating to a program initiated in the fourth quarter of 2015 and completed in the third quarter of 2016 to reduce the company’s global cost structure after several years of significant revenue and related cost growth. Cost-elimination expenses incurred during the three months and nine months ended September 30, 2016 consisted of $36.7 million and $73.6 million, respectively, of severance costs related to headcount reductions in connection with the program and $2.2 million and $4.9 million, respectively, of third-party contract termination costs.
 

Revenue includes client reimbursed pass through costs largely associated with employees that are dedicated to client facilities and subcontracted vendor work performed for clients, both of which are excluded from fee revenue. Reconciliations are shown below (dollars in thousands):

 
    Three Months Ended       Nine Months Ended
September 30, September 30,
2017     2016 2017     2016

Occupier Outsourcing

Fee revenue (1) (2) $ 628,348 $ 553,197 $ 1,794,046 $ 1,664,687
Plus: Pass through costs also recognized as revenue   1,081,447   941,269   3,002,248   2,773,277
 
Revenue (2) $ 1,709,795 $ 1,494,466 $ 4,796,294 $ 4,437,964
 
 

Property Management

Fee revenue (2) $ 137,618 $ 123,501 $ 393,714 $ 370,158
Plus: Pass through costs also recognized as revenue   147,196   138,312   436,385   403,951
 
Revenue (2) $ 284,814 $ 261,813 $ 830,099 $ 774,109
 

__________________

(1)     Certain adjustments have been made to 2016 fee revenue to conform with current-year presentation.
 
(2) Excludes associated leasing and sales revenue.
 
 

CBRE GROUP, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Dollars in thousands)

(Unaudited)

 
    September 30,     December 31,
2017 2016
Assets:
Cash and cash equivalents (1) $ 955,605 $ 762,576
Restricted cash 84,794 68,836
Receivables, net 2,843,126 2,605,602
Warehouse receivables (2) 1,434,910 1,276,047
Property and equipment, net 574,266 560,756
Goodwill and other intangibles, net 4,535,907 4,392,431
Investments in and advances to unconsolidated subsidiaries 233,634 232,238
Other assets, net   989,772   881,101
 
Total assets $ 11,652,014 $ 10,779,587
 
Liabilities:
Current liabilities, excluding debt $ 3,135,098 $ 3,270,749
Warehouse lines of credit (which fund loans that U.S. Government Sponsored Entities

have committed to purchase) (2)

1,416,253 1,254,653
Senior term loans, net 746,037 744,332
5.00% senior notes, net 791,394 790,405
4.875% senior notes, net 591,776 591,203
5.25% senior notes, net 422,361 422,183
Other debt 26 30
Other long-term liabilities   697,233   648,787
 
Total liabilities   7,800,178   7,722,342
 
Equity:
CBRE Group, Inc. stockholders' equity 3,795,470 3,014,487
Non-controlling interests   56,366   42,758
 
Total equity   3,851,836   3,057,245
 
Total liabilities and equity $ 11,652,014 $ 10,779,587
 

__________________

(1)     Includes $93.6 million and $73.3 million of cash in consolidated funds and other entities not available for company use as of September 30, 2017 and December 31, 2016, respectively.
 
(2) Represents loan receivables, the majority of which are offset by borrowings under related warehouse line of credit facilities.
 

Source: CBRE Group, Inc.

CBRE Group, Inc.
Brad Burke, 215.921.7436
Investor Relations
or
Steve Iaco, 212.984.6535
Media Relations